A Unit Investment Trust Explained by Securities Attorney David Meyer

Описание: In our opinion, for most individual investors, Unit Investment Trusts (UITs) are often a poor substitute for ordinary mutual funds. One of the potential problems and risks involved with purchasing UITs is that the portfolios are not actively traded, and they follow a buy-and-hold strategy. The portfolio remains fixed until the termination of the trust, usually ranging from 13 months to as much as 30 years depending on the underlying holdings.

Because UITs are unmanaged investments, they can’t take action or make investment decisions in response to or in anticipation of market declines or other events that are likely to effect the portfolios, even if such actions or decisions may be warranted.

This is especially problematic when the units are invested in volatile and risky sectors, or prudence calls for a timely rebalancing. In addition, UITs can be very expensive, both when they are first purchased and again when they dissolve. In many cases, brokers are pushing so-called “short term strategy trusts” that typically dissolve after one or two years.

Clients are often urged to reinvest automatically, rolling their units over into another, similar, newly created UIT once the old one dissolves. With each trust purchase and dissolution, investors are hit with initial sales charges, deferred sales charges, and other fees. In a taxable brokerage account, you may owe capital gains taxes each time a UIT matures. These layers of fees can add up, and bite up the returns on your investments to the tune of up to four percent or higher. This means you would need to achieve an annual return of four percent just to break even.

Unit investment trusts are not inherently bad. However, based on our experience representing individual investors who have lost substantial amounts of money with UITs and have been charged very high fees and commissions, our biggest concern is that they are complicated. Many investors who are sold UITs by their brokers do not have a handle on their risks and costs.

You should never invest in something that you don’t understand. If you invested in a UIT and lost a substantial amount of money, we invite you to contact the securities fraud lawyers at Meyer Wilson for a free review of your case.

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